Buy Cello World Ltd for the Target Rs. 732 By Prabhudas Liladhar Capital Ltd
Quick Pointers:
* Consumerware grew 23.4% in Q2FY26, while gross margin contracted by 230bps
* CELLO will execute an agreement to lease the “Cello” brand trademark from the BIC Group
Consumerware revenue (71.9% of Q2FY26 revenue) reported strong growth supported by good festive demand. Writing Instruments grew by 16.0% with revival of demand, new product launches, and export growth. CELLO’s gross margin contracted by 210bps, impacted by underutilization (60% in Q2FY26) of its glassware plant, high cost of steelware products sourced from OEMs, and continued discounting on products. Steelware category decline due to supply constraints. CELLO expects to improve its margins led by glassware and steelware plant ramp-ups and cost saving initiatives. We estimate revenue/EBITDA/PAT CAGR of 15.5%/14.3%/15.9% for FY25-28E.We upward revise FY27/FY28 earning estimate by 7.5%/9.2% factoring in incremental revenue contribution from the stationery segment under the “CELLO” brand, following the recent trademark leasing agreement. We assign SOTP-based TP of Rs732 (earlier Rs686), implying PE of 32x Sep’27E. Maintain “Buy.”
Re-entry into stationery segment under the “CELLO” brand: CELLO, through one of its wholly owned subsidiaries, will enter into an agreement to lease the “Cello” brand trademark for the Writing Instruments segment, marking its re-entry into the stationery business and expand its portfolio alongside “UNOMAX.” Initially, the company will utilize the idle capacity of ~30–35% at the UNOMAX facility for manufacturing “CELLO” branded products under the stationery segment, with plans to gradually expand capacity in line with growing demand and product portfolio expansion plans.
Q2FY26 – Sales up 19.9%, PAT up 4.9% YoY: Revenue increased by 19.9% YoY to Rs5.9bn (PLe: Rs5.4bn). Consumerware revenue (71.9% of Q2FY26 revenue) increased by 23.4% YoY to Rs4.2bn. Writing Instruments revenue (13.8% of Q2FY26 revenue) increased 16.0% YoY to Rs810mn. Moulded Furniture & Allied Products (14.3% of Q2FY26 revenue) increased by 7.8% to Rs843mn. Gross margin contracted by 210bps YoY to 49.5% (PLe: 51.4%). Gross margin of Consumerware/Moulded Furniture contracted by 230bps/430bps YoY to 50.2%/40.9%, while that of Writing Instruments expanded by 50bps YoY to 54.9%. EBITDA grew by 7.6% YoY to Rs1.3bn (PLe: Rs1.2bn). PAT increased by 4.9% YoY to Rs856mn (PLe: Rs783mn).
H1FY26 – Sales up 12.7%, PAT declines by 3.4% YoY: Revenue increased by 12.7% YoY to Rs11.2bn. Consumerware revenue (70.5% of H1FY26 revenue) increased by 17.7% YoY to Rs7.8bn. Writing Instruments revenue (13.9% of H1FY26 revenue) increased 1.1% YoY to Rs1.5bn. Moulded Furniture & Allied Products (15.6% of H1FY26 revenue) increased by 3.4% to Rs1.7bn. Gross margin contracted by 110bps YoY to 51.6%. Gross margin of Consumerware/Writing Instruments/Moulded Furniture contracted by 60bps/30bps/450bps YoY to 53.0%/56.8%/40.9%. EBITDA declined by 3.6% YoY to Rs2.4bn. PAT decreased by 3.4% YoY to Rs1.6bn.
Concall highlights: 1) The agreement to lease the trademark for “Cello” brand is expected to close within Nov’25, and revenue contribution is likely to start from Jan’26. 2) Company plans to utilize the existing idle capacity of approximately 30–35% at its UNOMAX facility for the initial manufacturing of CELLO products under the stationery segment. 3) CELLO has guided for double-digit growth in revenue and EBITDA margin of 22-23% for FY26. 4) Capacity utilization of its glassware plant stood at 55% in H1FY26 and 60% in Q2FY26; the plant achieved break-even in Q2FY26. The company aims to increase this to 80% by Q4FY26. 5) Capacity utilization in the Opalware segment stands at 85%. 6) Steelware plant is expected to commence production by Dec’25, thereby improving profit margins and enhancing cost competitiveness. 7) CELLO has planned capex of ~Rs1.5bn for FY26, which includes Rs750mn for a steel flask at its steelware plant, and maintenance capex of Rs750mn in FY27. 8) The company plans to commence plastic houseware production with a small capacity alongside the steelware plant and gradually scale up capacity over time. 9) CELLO has 110SKUs in the Glassware segment and aims to take it to 150SKUs. ?
Please refer disclaimer at https://www.plindia.com/disclaimer/
SEBI Registration No. INH000000271
